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Capital Structure as a Strategic Variable: Evidence from Collective Bargaining

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  • DAVID A. MATSA

Abstract

I analyze the strategic use of debt financing to improve a firm's bargaining position with an important supplier-organized labor. Because maintaining high levels of corporate liquidity can encourage workers to raise their wage demands, a firm with external finance constraints has an incentive to use the cash flow demands of debt service to improve its bargaining position with workers. Using both firm-level collective bargaining coverage and state changes in labor laws to identify changes in union bargaining power, I show that strategic incentives from union bargaining appear to have a substantial impact on corporate financing decisions. Copyright (c) 2010 The American Finance Association.

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  • David A. Matsa, 2010. "Capital Structure as a Strategic Variable: Evidence from Collective Bargaining," Journal of Finance, American Finance Association, vol. 65(3), pages 1197-1232, June.
  • Handle: RePEc:bla:jfinan:v:65:y:2010:i:3:p:1197-1232
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